Mortgages Unveiled: Everything You Need to Know

Definition of Mortgage

As per Section 58 of Transfer of Property act, It is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

In other words, It involves conveying a stake in a particular immovable property to ensure the repayment of funds already provided or to be provided as a loan, whether for an existing or anticipated debt, or for fulfilling an obligation that might lead to a financial liability.

The transferor is called as mortgagor and transferee as mortgagee;

The money and interest for which payment is currently secured are referred to as mortgage money. The document facilitating the transfer is known as a mortgage deed.

Various Types of mortgages based on possession

Simple Mortgage

Simple mortgage occurs when the mortgagor binds to pay the mortgage money without delivering possession of the property.
The mortgagee has the right to sell the property if the mortgagor fails to repay, using the proceeds to settle the mortgage money.

Conditional Mortgage

Mortgage by conditional sale involves the apparent sale of the property with conditions.
Conditions include the sale becoming absolute on default, becoming void upon payment, or requiring the buyer to transfer the property on repayment.
The mortgagee in this case is termed a mortgagee by conditional sale.

Usufructuary Mortgage

Usufructuary mortgage occurs when the mortgagor delivers possession of the property to the mortgagee.
The mortgagee receives rents and profits, applying them towards interest or mortgage money.
Possession is returned to the mortgagor upon repayment.

English Mortgage

In an English mortgage, the mortgagor commits to repaying the mortgage money on a set date.
The mortgaged property is transferred absolutely to the mortgagee but subject to retransfer upon repayment.

Mortgage by Deposit of Title Deeds

This type involves delivering title deeds to the creditor to create security.
Valid in specific towns, including Calcutta, Madras, and Bombay, or as notified by the State Government.
Essentials include the delivery of title deeds with the intent to create security.

Anomalous Mortgage

Anomalous mortgage is a combination of various mortgage types not fitting the standard categories.
It may include elements from simple, conditional, usufructuary, English, or mortgage by deposit of title deeds.

Types of Mortgages based on Repayment

Fixed Rate Mortgages

Interest rate and monthly payments remain constant throughout the loan term.
Also known as a traditional mortgage.

Adjustable Rate Mortgage (ARM)

Initial fixed interest rate, followed by periodic adjustments based on prevailing rates.
Caps or limits are often in place for rate adjustments.

Interest-Only Loans

Feature complex repayment schedules and are suitable for sophisticated borrowers.
May involve a large balloon payment at the end of the term.

Reverse Mortgages

Designed for homeowners aged 62 or older to convert home equity into cash.
Borrowers receive funds as a lump sum, fixed monthly payment, or line of credit.
Entire loan balance becomes due upon the borrower’s death, permanent relocation, or home sale.